More wild swings in share market

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Is the section in BOLD true? I still strongly believe in investing for the long-term based on the fundamentals of the underlying business. Big Grin

The Straits Times
Published on Aug 12, 2011
More wild swings in share market

By Jonathan Kwok
WITHIN 15 minutes of the Singapore market opening yesterday, shares of investor darling Singapore Airlines had sunk to $10.30 apiece.

But just five hours later, the stock was almost $1 higher at $11.28, handsomely rewarding fleet-footed traders who were brave enough to take on the risk of an intra-day trade.

It is a scene that has been played out increasingly often in the past two weeks, as jittery markets oscillate between fear and optimism.

For some market watchers , the chaotic scenes inspire a feeling of deja vu.

'This feeling is familiar, reminiscent of the previous crisis back in 2008,' said Singapore remisier Alan Goh.

'It's so volatile that the market can swing from red to green, and back from green to red. You never really know what's going to happen.'

'The markets are showing a lot of intra-day volatility,' said IG Markets Singapore managing director Peter McDermott. 'It's comparable to 2008 levels - a fraction lower than 2008 - and we haven't been at these levels since those days.'

Global markets have taken a heavy beating since the start of the month that has erased US$4trillion (S$4.8trillion) in share values worldwide, amid renewed fears of another United States recession and deepening euro zone debt woes.

The drama continued with yesterday's roller-coaster ride, which saw Asian shares initially plunging deep into the red, following Wall Street's overnight losses, but gaining strength as the day went on.

Tokyo and Hong Kong were down over 2 per cent but recovered most losses. Seoul and Shanghai shares ended in the black after early losses, partly with the help of state funds that snapped up stocks to lend support.

In Singapore, the Straits Times Index plunged 100 points, or over 3 per cent. It broke briefly into positive territory in the afternoon but another late dip meant the index ended the day lower by 0.88 per cent.

It was the same story in Europe, where markets opened higher, between 2 and 3 per cent, before renewed pessimism over French banks pulled the indexes under and a strong opening on Wall Street hoisted them back up.

At about 11pm last night, the Dow Jones Industrial Average was up 300 points, or more than 2.8 per cent, and had regained the 11,000 mark.

The return of volatility has led to more investors giving up holding stocks long-term and turning to short-term trades to try to make a quick buck, broking houses told The Straits Times.

'Most of them are intra-day,' said Mr Daniel Kwek, executive vice-president of retail operations at Kim Eng Securities, referring to those who buy and sell the same stock on the same day, pocketing or paying up the price difference.

He confirmed that Kim Eng has seen more short-term traders and added: 'In this stock market, people are more cautious about holding shares overnight. The swings are so huge, you don't know what the Dow Jones is going to do tonight.'

One trader, who did not want to be named, said he went back into intra-day trading yesterday - something he had not done for almost two years.

'Intra-day trading can be stressful as I have to stare at the screen the whole day,' he said. 'But today, I saw the markets were choppy, so I bought, made some profit, and just ran by the end of the day.'

Other traders have turned to derivatives, like contracts for difference (CFDs), which allow them to easily take bets on the market's direction.

IG Markets, which allows people to trade CFDs, as well as indexes and currencies, reports that it is handling double the number of trades per day from its client base. The rate of account opening, from new traders, has also doubled.

But investment advisers and strategists warned yesterday that in this type of market, prices can swing unpredictably against a punter, so investors must be well-trained before trying out short-term trades.

'Most people who enter intra-day trades are normally hardened traders who can follow prices minute-to-minute,' said AmFraser Securities analyst Najeeb Jarhom.

'Those who are novices are doing an unwise thing, it's almost suicidal. I've spoken to one trader who said that to follow even two stocks in a day is a very difficult task.'

Mr Vasu Menon, head of content and research at OCBC's wealth management division, added: 'People have to understand the difference between excitement and investment. Intra-day trading offers you mainly excitement: it's akin to gambling, it's highly risky.'

Additional reporting by Charissa Yong
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